WASHINGTON — The Office of the Comptroller of the Currency unveiled a new program that will allow examiners to raise a red flag when they disagree with supervisory decisions.
The move is designed to quell criticism from inside and outside the agency that senior level OCC officials were able to override the recommendations of examiners. It follows a promise Comptroller of the Currency Thomas Curry made to the Senate Banking Committee at a hearing soon after taking office, where lawmakers criticized the agency for ineffective anti-money-laundering supervision at HSBC's U.S. unit.
"Succeeding in bank supervision requires examiners to make the tough calls," Curry said in a statement to American Banker. "It also requires an environment that supports the open discussion of our concerns, encourages people to speak up about weakness they see at the banks and thrifts we regulate, and provides the opportunity to escalate those issues when necessary. The Comptroller's Internal Bank Supervision Appeals Program is an important step in that direction."
The OCC has not publicized the change, but did confirm details once contacted by American Banker. Curry announced the internal appeals process during a town hall meeting with agency employees via a conference call on Thursday and provided more details on an internal web page on Monday.
The program encourages examiners to resolve disagreements "at the lowest possible level" with their direct supervisors, according to the web page, but also provide the opportunity to raise a concern directly to the comptroller's office.
Curry has designated Larry Hattix, the agency's ombudsman, to investigate complaints forwarded by the comptroller's office. Agency employees will be able to submit concerns via email, but that may be expanded to a more formal notification system in the future, an agency spokesman said.
Despite the new avenue for feedback, employees are still encouraged to follow the chain of command. When bank examiners at large banks disagree with their supervisors, they should attempt to resolve the issue with their team leaders, and then later with the examiner-in-charge of the bank, the agency said. Only if they are still unsatisfied should they send their concers directly to the comptroller.
Examiners at community and mid-size banks should follow similar protocols, directing their concerns to their examiners in charge, then to the assistant deputy comptroller for midsize/community bank supervision, before notifying the comptroller's office.
The complaints should be specific, the agency said.
Examiners should include the name of the bank and its charter number; the type of exam and the date; a brief description of the disagreement; the applicable guidance related to the complaint; and a timeline of the discussions already held with their supervisors.
"It is critical that all facts and information be considered when resolving bank supervision issues," the agency said on the program website. "Therefore, the Comptroller's Internal Bank Supervision Appeals Program is not anonymous. However, the Comptroller assures employees that no negative actions will be taken against employees who raise concerns through this program."
Curry's office will review each complaint and send issues that require additional action to the ombudsman's office for investigation, according to the website. That office will prepare a report and forward recommendations to the comptroller's office for a final decision.
The new program comes in the wake of criticism about the agency's independence and the quality of its bank supervision following a yearlong Senate investigation into anti-money-laundering () practices at HSBC.
According to the investigation, OCC examiners knew of the bank's weak anti-laundering controls for a long time, but were unable to convince more senior officials at the agency to sign off on an enforcement action for six years.
At the July hearing by the Senate Permanent Subcommittee on Investigations, which led the HSBC review, Curry acknowledged that the OCC should have acted sooner, and said he was trying to create a tougher, more ethical agency.
"I want to have a culture at the OCC in which examiners feel free to voice documented, well-founded concerns about the performance of the banks that they've examined, to know that those concerns are going to be fairly and thoroughly reviewed," Curry said.
The HSBC investigation was not the first time the agency has been accused of overlooking problems at large institutions.
A 2006 report by the Treasury Inspector General () said the OCC should have issued a cease and desist order against Wells Fargo & Co. for repeated and severe problems with its anti-laundering program.
Instead, the report found, senior OCC officials overturned the recommendations of its examiners and let the company off with an informal enforcement action, violating its internal procedures for such problems and undermining the country's anti-laundering system.
That report was sparked by an anonymous OCC employee who accused the agency of bowing to pressure from Richard Kovacevich, Wells' chief executive at the time.
Observers, including former OCC officials, said the appeals process will allow Curry to tap into new sources of information about how banks are being supervised on the ground.
Donald Lamson, a lawyer at Shearman & Sterling who spent more than 30 years at the OCC, said managers at large corporations, including banks, are often concerned about being placed in an information bubble.
"It is increasingly common as a management tool to permit direct escalation of issues by staff to higher-ups," he said.
Lamson said the OCC's program can be viewed as a "best practice" that will allow senior managers to hear from employees with whom they wouldn't ordinarily interact.
"The trick to this is …trying not to get inundated with information, and being able to distinguish good information from baseless complaints," Lamson said. "So they're going to have to be very careful how they go about that."
Kevin Petrasic, a partner with Paul Hastings and a former official with the Office of Thrift Supervision, said the program will also help Curry as he continues to get his bearings as the new head of the agency.
"My guess is that his concern, at this point, would be to make sure that as much information is filtering through to the highest levels so that he can really understand if there are potential vulnerabilities that somebody feels strongly about in the rank and file," he said.
Former Texas Banking Commissioner Cathy Ghiglieri, who spent 18 years at the OCC, praised the new program, which she likened to a whistleblower process at a public company.
"Field examiners are insulated from politics and pressure and a lot of different things, and they are just calling the shots like they see them," Ghiglieri, who spent seven years as a field examiner, said. "And if they're constantly getting overturned or overruled, this would be a perfect way of someone at the top understanding it."
Kevin Jacques, the Boynton D. Murch Chair in Finance at Baldwin-Wallace College and a former OCC economist, said the strength of the agency is its on-the-ground examiners, and providing them with a louder voice is an important step toward changing the culture. But Jacques said the OCC's weakness has been focusing too much on legal thought, and not enough on macroeconomics.
"The OCC still has to find a way to take what the examiner sees at the individual banks and translate that into the big picture to help the agency going forward," he said.